Bloomberg News

Greek Rollover Probably Won’t Trigger CDS, ISDA’s Geen Says

July 06, 2011

(Updates swap costs in fourth paragraph.)

July 6 (Bloomberg) -- A rollover or exchange of Greek bonds probably won’t trigger credit-default swap insurance contracts because the restructuring would be voluntary, according to David Geen at the International Swaps & Derivatives Association.

Germany is reviving proposals for a swap involving a voluntary exchange of debt against bonds with a longer maturity, a government official said today. Greek banks are willing to roll over their government bonds as part of a European Union rescue, Finance Minister Evangelos Venizelos said.

“From a CDS point of view, the proposals are all either an exchange or a rollover,” Geen, ISDA’s general counsel in London, said today. “If it’s voluntary, any rollover or exchange doesn’t trigger CDS.”

European Central Bank chiefs have committed to ensure any Greek debt restructuring won’t be deemed a credit event enabling buyers of protection to seek compensation from swaps sellers. The contracts surged 167 basis points to 2,091 today, and now signal a more than 82 percent probability of default within five years, according to data provider CMA.

The ECB’s total exposure to Greece may be 130 billion euros ($184 billion) to 140 billion euros, Dutch Finance Minister Jan Kees de Jager said last month. The ECB provided 90 billion euros of liquidity to Greek banks, he said.

Credit Event

Credit-default swaps on Greece cover a net notional $4.8 billion, according to the Depository Trust & Clearing Corp., which runs a central registry that captures most trades. That’s just 1 percent of the government’s $500 billion of bonds and loans outstanding, according to data compiled by Bloomberg.

Investors who hold bonds that are covered by swaps protection and don’t take part in a voluntary restructuring are still covered “if there is a default in the future,” Geen said in a later interview with Erik Schatzker on Bloomberg Television’s “Inside Track.”

Swaps on western European governments can pay out on a credit event triggered by failure to pay, restructuring or a moratorium on payments.

A restructuring event can be caused by a reduction in principal or interest, postponement or deferral of payments or a change in the ranking or currency of obligations, according to ISDA rules. Any of these changes must result from deterioration in creditworthiness, apply to multiple investors and be binding on all holders.

Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a swap protecting $10 million of debt.

--Editors: Michael Shanahan, Paul Armstrong

To contact the reporter on this story: Abigail Moses in London at

To contact the editor responsible for this story: Paul Armstrong at

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